Chile, Supreme Court, First Chamber, 28 July 2022, No. 85.755-2021

Case overview

Country
Chile
Case ID
No. 85.755-2021
Decision date
Deciding body (English)
Supreme Court, First Chamber
Deciding body (Original)
Corte Suprema, Sala Primera
Type of body
Court
Type of Court (material scope)
Civil Court
Type of jurisdiction
Single jurisdiction system
Type of Court (territorial scope)
State Court
Instance
Supreme court, Cassation (Review)
Area
Freedom to conduct a business
Outcome of the decision
Claim upheld
General Summary

A respondent in a civil case filed a cassation request after a higher Court ruled against him regarding a lease contract. The applicant had leased an office to the respondent (a corporation). However, the respondent failed to pay rent starting in March 2020. The proprietor then filed a civil suit requesting a contract termination and the payment of all fees owed by the respondent with regard to the lease (public utilities and rents). The respondent claimed that he did not owe any fees, considering that, since March 2020, the national government had declared an emergency due to the Covid-19 pandemic, with lockdowns and other sanitary measures. Hence, he could not use the office to conduct his business. Both a lower and higher court ruled in favor of the plaintiff. However, the Supreme Court, when reviewing the case, revoked the decision of the higher Court. For the Supreme Court, Article 1932 of the Civil Code (which allows the tenant to terminate a contract if the “quality of the asset” does not allow him/her to utilize the asset according to its intended use, provided in the contract) applied in the current case. For the Court, restriction of commercial activities, imposed by the government within the framework of the national emergency of the Covid-19 pandemic, constituted an “anomaly” in the office as a leased asset, which affected its quality. Hence, the tenant had the right to terminate the contract, and the subsequent risks associated with this “anomaly” had to be borne by the proprietor. Thus, it ruled in favor of the respondent, freeing them from fees.

Facts of the case

On December 1, 2017, the plaintiff and the respondent concluded a lease agreement of an office with a rent of $646,000 (local currency). At the beginning of 2020, the Chilean Government declared a national emergency (with lockdowns and other health measures such as a restriction on commercial activities) due to the Covid-19 pandemic. Starting in March 2020, the respondent failed to pay the rent for the office. The plaintiff filed a civil suit to terminate the contract and collect the fees owed by the respondent. On February 25, 2021, a lower court declared termination of the contract and ruled that the respondent had to pay some of the fees. On May 13, 2021, a higher court revoked the decision and ruled that the respondent had to pay all the fees. On July 28, 2022, the Supreme Court revoked the decision and freed the respondent from debt, considering that the Covid-19 pandemic had created an “anomaly” in the office as an asset, allowing the tenant to terminate the contract (with the proprietor bearing the correlative risks).

Type of measure challenged
Higher court’s decision
Measures, actions, remedies claimed
The respondent, through a cassation request, asked the Court to revoke the higher court’s decision and to free him from payment of fees
Individual / collective enforcement
Individual action brought by one or more individuals or legal persons exclusively in their own interest.
Nature of the parties
  • Claimant(s)
    Private individual
  • Defendant(s)
    Private individual
Reasoning of the deciding body

The Supreme Court reasoned that Article 1932 of the Civil Code (which allows a tenant to terminate a contract if the “quality of the asset” does not allow him/her to utilize the asset according to its intended use, provided in the contract) applied in the current case. For the Court, restriction of commercial activities, imposed by the government within the framework of the national emergency of the Covid-19 pandemic, constituted an “anomaly” in the office as a leased asset, which affected its quality. Hence, the tenant had the right to terminate the contract, and the subsequent risks associated with this “anomaly” were to be borne by the proprietor.

Conclusions of the deciding body

The Court concluded that, due to the Covid-19 emergency and the health measures of the government, the respondent had no obligation to pay fees related to rent and public utilities for the time they could not use the office.

Fundamental Right(s) involved
Tenant Rights
Fundamental Right(s) instruments (constitutional provisions, international conventions and treaties)
Rights of the tenant when the asset is in a bad state or has a bad quality, Art. 1932, Chilean Civil Code
Rights and freedoms specifically identified as (possibly) conflicting with the right to health
Health v. economic freedoms
General principle applied
State of emergency or necessity
Balancing techniques and principles (proportionality, reasonableness, others)

The Court implicitly analyzed whether in a state of emergency, such as the Covid-19 pandemic, the interpretation of A rticle 1932 of the Civil Code could be extended to a special “anomaly” of the office (as an asset): not being able to use it as intended, due to government lockdowns and a restriction of commercial activities. For the Court, considering these special circumstances, this interpretation was suited for the present case

Author of the case note
Valentina del Sol Salazar Rivera, Instructor, Externado University, Colombia